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Lockheed Martin Wins $47.8M Deal from US Air Force for F-16

Lockheed Martin Corporation (LMT - Free Report) announced that its aeronautics business segment has secured a $47.8 million contract from the U.S. Air Force.

Per the terms of the contract, the company is required to provide engineering and technical services for F-16 aircraft. Work related to the deal will be carried out at the Hill Air Force Base, UT; Toledo, OH; Tucson, AZ and McEntire Joint National Guard Base, SC along with 12 other international locations such as Bahrain, Pakistan, Chile, Jordan, Turkey, Morocco, Taiwan, Oman, Egypt, Iraq, Thailand and Indonesia. Operations are expected to be completed by June 2020.

The F-16V, which is the latest F-16 configuration, comes with numerous enhancement designs to make the F-16 aircraft one of the top choices for the international security forces. The latest version is equipped with Active Electronically Scanned Array (AESA) radar, a modern commercial off-the-shelf (COTS)-based avionics subsystem, a large format, high-resolution display and a high volume and speed data bus.

Importance of Foreign Military Sales

Foreign Military Sales (FMS) is a program with which the U.S. government assists defense companies in selling related articles and services to other governments or international customers. The U.S. Department of Defense thus works as an intermediary between manufacturers and foreign customers.

FMS helps in extending military ties between the United States and other military governments and helps U.S. allies to contribute efficiently in joint missions. The FMS contracts support the top line of the U.S. defense companies when there is a drop in domestic orders.

Foreign Military Sales Aids Lockheed

In March 2017, President Donald Trump’s administration said that it will go forward with the sale of 19 Lockheed Martin F-16 jets to Bahrain worth $5 billion. This deal was earlier stalled by the Obama Administration owing to the human rights concerns. This gave a huge boost to this product line for the company. (Read More: Trump Admin to Pursue Lockheed's F-16 Jet Sale to Bahrain)

Additionally, the company has been witnessing strong demand for its equipment, ranging from C-130J aircraft in France and Germany, helicopters in Poland and missile defense systems in the Asia-Pacific, Europe and Middle East regions.

Moreover, in the month of May, Trump signed an arms deal worth $110 billion with Saudi Arabia. Notably, Lockheed Martin seemed to have garnered the majority of this huge pact, with Saudi Arabia set to procure its integrated air and missile defense, combat ship, tactical aircraft and rotary wing technologies and programs for $28 billion.

Other than the foreign military sales, the proposed hike in the 2018 defense budget is also expected to boost the performance of defense behemoths like Lockheed Martin, General Dynamics (GD - Free Report) , The Boeing Company (BA - Free Report) , Northrop Grumman Corporation (NOC - Free Report) among others.

Price Movement

Shares of Lockheed Martin have gained 13.1%, outperforming the industry’s gain of 12% in the last six months.

As the largest defense contractor in the world, Lockheed Martin continues to be a strong cash generator. The recently passed defense policy bill for 2018, with a promise of $696 billion budget, is also expected to boost growth of this defense prime.

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